A lot of the issues that surround credit scores and credit reports can be rather confusing to say the least. But the one thing that most people know is that the higher their credit score is the better their chances of getting a mortgage, a car loan or a credit card with a decent interest rate and all those cool ‘perks’ that sound so appealing in the adverts.
Most people wonder just what are the best ways to help ensure that they have the highest credit score possible and although that in itself is a complex issue there are some tips you should know about that are probably more important than others. Here are our top 7 credit tips:
1) Pay Within Thirty Days
A large chunk of your credit score is based upon your payment history and more specifically debts that are over thirty days past due have the biggest impact. This essentially means that if you are going to be a few days late with a credit account payment so be it but try never to let it go past that thirty-day mark to avoid it having a bigger impact on your credit score.
2) You Do Need a Credit Card
A lot of us may have had older relatives who told us that the best way to live your life, financially at least, is to pay for the everyday things you buy with cash as you can afford them and avoid the dangers of credit card use altogether.
Logically this advice makes a lot of sense. However, realistically, what are the chances that you are ever going to have 200,000 in the bank to buy a house unless you hit the lottery?
If you choose to open no credit accounts but carry no debts you are still a big risk in the eyes of a lender because you really do not have a credit score at all. Therefore you really do need to open at least one credit account and use it responsibly and on a regular basis in order to be able to qualify for bigger ticket lines of credit in the future.
If you are finding it hard to qualify for a credit card at all you can consider obtaining a secured credit card and making regular responsible payments. Alternately, if you do want to avoid getting into secured credit cards right now – they can be pricey – paying off a small, short term loan properly and promptly can give your credit score a nice boost as well.
3) Canceling Your Credit Cards May Not Help Your Credit Score
Although many people do not realize it canceling credit cards can actually damage your credit score rather than help it. This is especially true if you have had the card for some time and the account has become a part of your long-established credit history.
Even if you never intend to use the credit card again – you found one with a better interest rate, better perks etc and you intend to use that in the future instead – it is much better to shred and forget the card than cancel it altogether as 15% of your total credit score is based on the length of your credit history.
Keeping the account open is also better for your debt to credit ratio in most cases and that is something that accounts for a whopping 30% of your credit score!
4) Do Not Apply for Too Many Credit Lines at Once
This is a mistake a lot of young people make, especially when they are just starting their first job or have just arrived at university. Unable to decide between credit offerings, or unsure of which they might be approved for they apply for three or four at once. Or they apply for a store card someplace, a fuel card and a couple of credit cards to make sure that “all their bases are covered.”
The thing is though that every time a lender makes a “hard pull’ on your credit it leaves a slight negative mark for up to a year. Applying for too much credit at one time is also a signal to the credit reporting agencies that you may not be the most financially responsible individual in the world.
Be careful about checking your credit through a credit repair or management service as well. While there is such a thing as a soft pull not all companies do that and having them pull your credit report for you rather than requesting it yourself can count as a hard pull that will last for a year.
5) Get Your Kids Started Early
The days when you could give your child a second credit card on your account and it would help them build credit are long gone. But you can help them get ready for a better financial future by teaching them the basics of banking, budgeting, and responsible spending early on.
One of the biggest reasons that people run into trouble when they are young is that they simply did not understand how personal finances work and that their actions may unintentionally damage their brand new credit profiles. If you can provide them with a basic solid knowledge you really will be helping them out.
6) Know What’s On Your Credit Reports
In the UK, three major credit reporting agencies compile information on how well you manage credit and make your payments.
The three main CRAs are:
- Experian
- Equifax
- Callcredit
Each of them holds a credit report on every adult and these reports may differ slightly. And you should know what is on each of them. By requesting a copy of your credit reports you will not only get a clear picture of how potential lenders ‘see’ you but you can also check for any mistakes (they do happen) and request they be corrected.
All CRAs have a statutory obligation to provide you with a copy of your credit report for £2.
You can access the report online or by asking for a written copy. You can make those requests via the following links:
- Check your credit report with Equifax
- Check your credit report with Experian
- Check your Callcredit credit report with Credit Karma (CallCredit)
7) Never Lie About Your Credit Scores
As tempting as it might seem at times you should never lie about your credit scores on any application, not even an application for a flat or a job. It is very easy for people to check the information that you give them and you may even end up in legal hot water if you are caught lying.